Chapter 5, Problem 2PA

Sales-related transactions using perpetual inventory system

The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to other businesses and occasionally to retail customers:

Instructions

Journalize the entries to record the transactions of Green Lawn Supplies Co.

To determine

Sales is an activity of selling the  inventory of a business.

To Record: The sale transactions of the company.

Explanation of Solution

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 2	Accounts receivable	18,711 (1)
	Sales Revenue		18,711
	(To record the sale of inventory on account)

Table (1)

Working Note:

Calculate the amount of accounts receivable.

Sales = $18,900

Discount percentage = 1%

  $\begin{array}{c}\text{Amount of accounts receivable}\}\text{ = }\left(\text{Sales}-\text{Discount}\right)\\ \text{=}\text{Sales}-\left(\text{Sales}\times 1\%\right)\\ \text{= \$18,900 – }\left(\$18,900\times 1\%\right)\\ \text{= \$18,900}-\$189\\ =\$18,711\end{array}$ (1)

• Accounts Receivable is an asset and it is increased by $18,711. Therefore, debit accounts receivable with $18,711.
• Sales revenue is revenue and it increases the value of equity by $18,711. Therefore, credit sales revenue with $18,711.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 2	Cost of  Sold	13,300
	Inventory		13,300
	(To record the cost of goods sold)

Table (2)

• Cost of  sold is an expense account and it decreases the value of equity by $13,300. Therefore, debit cost of  sold account with $13,300.
• Inventory is an asset and it is decreased by $13,300. Therefore, credit inventory account with $13,300.

Record the journal entry for the sale of inventory for cash.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 3	Cash	12,031 (3)
	Sales Revenue		11,350
	Sales Tax Payable		681 (2)
	(To record the sale of inventory for cash)

Table (3)

Working Notes:

Calculate the amount of sales tax payable.

Sales revenue = $11,350

Sales tax percentage = 6%

  $\begin{array}{c}\text{Sales tax payable = }\left(\text{Sales}\times \text{Sales tax percentage}\right)\\ \text{=}\left(\text{Sales}\times 6\%\right)\\ \text{= }\left(\$11,350\times 6\%\right)\\ \text{= \$681}\end{array}$

   (2)

Calculate the amount of cash received.

Sales revenue = $11,350

Sales tax payable = $681 (2)

  $\begin{array}{c}\text{Cash received = }\left(\text{Sales}+\text{Sales tax payable}\right)\\ \text{=}\$11,350+\$681\\ \text{= \$12,031}\end{array}$

   (3)

• Cash is an asset and it is increased by $12,031. Therefore, debit cash account with $12,031.
• Sales revenue is revenue and it increases the value of equity by $11,350. Therefore, credit sales revenue with $11,350.
• Sales tax payable is a liability and it is increased by $681. Therefore, credit sales tax payable account with $681.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 3	Cost of  Sold	7,000
	Inventory		7,000
	(To record the cost of goods sold)

Table (4)

• Cost of  sold is an expense account and it decreases the value of equity by $7,000. Therefore, debit cost of  sold account with $7,000.
• Inventory is an asset and it is decreased by $7,000. Therefore, credit inventory account with $7,000.

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 4	Accounts receivable	55,400
	Sales Revenue		55,400
	(To record the sale of inventory on account)

Table (5)

• Accounts Receivable is an asset and it is increased by $55,400. Therefore, debit accounts receivable with $55,400.
• Sales revenue is revenue and it increases the value of equity by $55,400. Therefore, credit sales revenue with $55,400.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 4	Cost of  Sold	33,200
	Inventory		33,200
	(To record the cost of goods sold)

Table (6)

• Cost of  sold is an expense account and it decreases the value of equity by $33,200. Therefore, debit cost of  sold account with $33,200.
• Inventory is an asset and it is decreased by $33,200. Therefore, credit inventory account with $33,200.

Record the journal entry for the sale of inventory for cash.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 5	Cash	31,800 (5)
	Sales Revenue		30,000
	Sales Tax Payable		1,800 (4)
	(To record the sale of inventory for cash)

Table (7)

Working Notes:

Calculate the amount of sales tax payable.

Sales revenue = $30,000

Sales tax percentage = 6%

  $\begin{array}{c}\text{Sales tax payable = }\left(\text{Sales}\times \text{Sales tax percentage}\right)\\ \text{=}\left(\text{Sales}\times 6\%\right)\\ \text{= }\left(\$30,000\times 6\%\right)\\ \text{= \$1,800}\end{array}$

   (4)

Calculate the amount of cash received.

Sales revenue = $30,000

Sales tax payable = $1,800 (2)

  $\begin{array}{c}\text{Cash received = }\left(\text{Sales}+\text{Sales tax payable}\right)\\ \text{=}\$30,000+\$1,800\\ \text{= \$31,800}\end{array}$

   (5)

• Cash is an asset and it is increased by $31,800. Therefore, debit cash account with $31,800.
• Sales revenue is revenue and it increases the value of equity by $30,000. Therefore, credit sales revenue with $30,000.
• Sales tax payable is a liability and it is increased by $1,800. Therefore, credit sales tax payable account with $1,800.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 5	Cost of  Sold	19,400
	Inventory		19,400
	(To record the cost of goods sold)

Table (8)

• Cost of  sold is an expense account and it decreases the value of equity by $19,400. Therefore, debit cost of  sold account with $19,400.
• Inventory is an asset and it is decreased by $19,400. Therefore, credit inventory account with $19,400.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 12	Cash	18,711
	Accounts Receivable		18,711
	(To record the receipt of cash against accounts receivables)

Table (9)

• Cash is an asset and it is increased by $18,711. Therefore, debit cash account with $18,711.
• Accounts Receivable is an asset and it is increased by $18,711. Therefore, debit accounts receivable with $18,711.

Record the journal entry for the sale of inventory for cash.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 14	Cash	13,700
	Sales Revenue		13,700
	(To record the sale of inventory for cash)

Table (10)

• Cash is an asset and it is increased by $13,700. Therefore, debit cash account with $13,700.
• Sales revenue is revenue and it increases the value of equity by $13,700. Therefore, credit sales revenue with $13,700.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 14	Cost of  Sold	8,350
	Inventory		8,350
	(To record the cost of goods sold)

Table (11)

• Cost of  sold is an expense account and it decreases the value of equity by $8,350. Therefore, debit cost of  sold account with $8,350.
• Inventory is an asset and it is decreased by $8,350. Therefore, credit inventory account with $8,350.

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 16	Accounts receivable	27,225 (6)
	Sales Revenue		27,225
	(To record the sale of inventory on account)

Table (12)

Working Note:

Calculate the amount of accounts receivable.

Sales = $27,500

Discount percentage = 1%

  $\begin{array}{c}\text{Amount of accounts receivable}\}\text{ = }\left(\text{Sales}-\text{Discount}\right)\\ \text{=}\text{Sales}-\left(\text{Sales}\times 1\%\right)\\ \text{= \$27,500 – }\left(\$27,500\times 1\%\right)\\ \text{= \$27,500}-\$275\\ =\$27,225\end{array}$ (6)

• Accounts Receivable is an asset and it is increased by $27,225. Therefore, debit accounts receivable with $27,225.
• Sales revenue is revenue and it increases the value of equity by $27,225. Therefore, credit sales revenue with $27,225.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 16	Cost of  Sold	16,000
	Inventory		16,000
	(To record the cost of goods sold)

Table (13)

• Cost of  sold is an expense account and it decreases the value of equity by $16,000. Therefore, debit cost of  sold account with $16,000.
• Inventory is an asset and it is decreased by $16,000. Therefore, credit inventory account with $16,000.

Record the journal entry for sales return.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
March 18	Customer Refunds Payable		4,752 (7)
	Accounts Receivable			4,752
	(To record sales returns)

Table (14)

Calculate the amount of refund owed to the customer.

Sales return = $4,800

Discount percentage = 1%

  $\begin{array}{c}\text{Amount of refund owed to customer = Sales}\text{Return}-\text{Discount}\\ =\text{Sales}\text{return}-\left(\text{Sales}\text{return}\times \text{discount}\right)\\ \text{= \$4,800}-\left(\$4,800\times 1\%\right)\\ =\$4,800-\$48\\ =\$4,752\end{array}$

   (7)

• Customer refunds payable is a liability account and it is decreased by $4,752. Therefore, debit customer refunds payable account with $4,752.
• Accounts Receivable is an asset and it is decreased by $4,752. Therefore, credit account receivable with $4,752.

Record the journal entry for the return of the .

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 18	Inventory	2,900
	Estimated Returns Inventory		2,900
	(To record the return of the )

Table (15)

• Inventory is an asset and it is increased by $2,900. Therefore, debit inventory account with $2,900.
• Estimated retunrs inventory is an expense account and it increases the value of equity by $2,900. Therefore, credit estimated returns inventory account with $2,900.

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 19	Accounts receivable	8,085 (8)
	Sales Revenue		8,085
	(To record the sale of inventory on account)

Table (16)

Working Note:

Calculate the amount of accounts receivable.

Sales = $8,250

Discount percentage = 2%

  $\begin{array}{c}\text{Amount of accounts receivable}\}\text{ = }\left(\text{Sales}-\text{Discount}\right)\\ \text{=}\text{Sales}-\left(\text{Sales}\times 2\%\right)\\ \text{= \$8,250 – }\left(\$8,250\times 2\%\right)\\ \text{= \$8,250}-\$165\\ =\$8,085\end{array}$ (8)

• Accounts Receivable is an asset and it is increased by $8,085. Therefore, debit accounts receivable with $8,085.
• Sales revenue is revenue and it increases the value of equity by $8,085. Therefore, credit sales revenue with $8,085.

Record the journal entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
March 19	Accounts Receivable		75
	Cash			75
	(To record freight charges paid)

Table (17)

• Accounts Receivable is an asset and it is increased by $75. Therefore, debit accounts receivable with $75.
• Cash is an asset and it is decreased by $75. Therefore, credit cash account with $75.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 19	Cost of  Sold	5,000
	Inventory		5,000
	(To record the cost of goods sold)

Table (18)

• Cost of  sold is an expense account and it decreases the value of equity by $5,000. Therefore, debit cost of  sold account with $5,000.
• Inventory is an asset and it is decreased by $5,000. Therefore, credit inventory account with $5,000.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 26	Cash	22,473 (9)
	Accounts Receivable		22,473
	(To record the receipt of cash against accounts receivables)

Table (19)

Calculate the amount of cash received.

Net accounts receivable = $22,473

Customer refunds payable = $4,752

  $\begin{array}{c}\text{Amount of cash received}\}\text{ = Net accounts receivable}-\text{Customer refunds payable}\\ \text{= \$27,225}-\$4,752\\ =\$22,473\end{array}$

   (9)

• Cash is an asset and it is increased by $22,473. Therefore, debit cash account with $22,473.
• Accounts Receivable is an asset and it is increased by $22,473. Therefore, debit accounts receivable with $22,473.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 28	Cash	8,160 (10)
	Accounts Receivable		8,160
	(To record the receipt of cash against accounts receivables)

Table (20)

Calculate the amount of cash received.

Net accounts receivable = $8,085

Freight charges = $75

  $\begin{array}{c}\text{Amount of cash received}\}\text{ = Net accounts receivable}+\text{Freight charges}\\ \text{= \$8,085}+\$75\\ =\$8,160\end{array}$

   (10)

• Cash is an asset and it is increased by $8,160. Therefore, debit cash account with $8,160.
• Accounts Receivable is an asset and it is increased by $8,160. Therefore, debit accounts receivable with $8,160.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 31	Cash	55,400
	Accounts Receivable		55,400
	(To record the receipt of cash against accounts receivables)

Table (21)

• Cash is an asset and it is increased by $55,400. Therefore, debit cash account with $55,400.
• Accounts Receivable is an asset and it is increased by $55,400. Therefore, debit accounts receivable with $55,400.

Record the journal entry for delivery expense.

Date	Accounts and Explanation	Debit ($)	Credit ($)
March 31	Delivery expense	5,600
	Cash		5,600
	(To record the payment of delivery expenses)

Table (22)

• Delivery expense is an expense account and it decreases the value of equity by $5,600. Therefore, debit delivery expense account with $5,600.
• Cash is an asset and it is decreased by $5,600. Therefore, credit cash account with $5,600.

Record the journal entry for credit card expense.

Date	Accounts and Explanation	Debit ($)	Credit ($)
April 3	Credit card expense	940
	Cash		940
	(To record the payment of credit card expenses)

Table (23)

• Credit card expense is an expense account and it decreases the value of equity by $940. Therefore, debit credit card expense account with $940.
• Cash is an asset and it is decreased by $940. Therefore, credit cash account with $940.

Record the journal entry for credit card expense.

Date	Accounts and Explanation	Debit ($)	Credit ($)
April 15	Sales tax payable	6,544
	Cash		6,544
	(To record the payment of credit card expenses)

Table (24)

• Sales tax payable is a liability account and it is decreased by $6,544. Therefore, debit customer refunds payable account with $6,544.
• Cash is an asset and it is decreased by $6,544. Therefore, credit cash account with $6,544.